The market failure of external cost

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Reference no: EM13118540

1. If a consumer purchases a combination of commodities x and y such that MUx/Px = 20 and MUy/Py = 10, to maximize utility, the consumers should buy.

a) less of x and more of y.
b) more of x and less of y.
c) more of both x and y.
d) less of both x and y.

Utility

0
1
2
3
4
5
6
7

Total Utility
0
20
35
45
50
50
45
35

2.  (Exhibit: Utility) Marginal utility first becomes negative at the _______ unit.

a) first
b) second
c) fifth
d) sixth

3. A variable factor of production is defined in the text as one:
a) that can perform several different functions.
b) that is able to produce more or less during some time period.
c) whose quantity can be changed in a particular time period.
d) a and c are true, but not b.

4. (Exhibit: Perfectly Competitive Firm) The exhibit shows a perfectly competitive firm that faces demand curve d, has the cost curves shown, and maximizes profit. The firm's total revenue per day is:

a) $475.
b) $600.
c) $900.
d) $1,200.

5. The market failure of external cost is most likely to result if Peanuts 'R' Us:
a) keeps secret a discovery that excessive consumption of peanut butter causes nearsightedness.
b) discards broken peanut shells onto an adjacent recreational area in its production of peanut butter.
c) is subject to performance standard regulations by the PBRC (Peanut Butter Regulatory Commission).
d) develops a new peanut butter processing machine that enhances competition.

5.

A copper mining operation discharges waste products into a river and causes higher costs and discomfort to downstream users of the water. In this case:
a) too few of society's resources are being used to produce copper.
b) too many of society's resources are being used to produce copper.
c) the ideal amount of society's resources are being used to produce copper.
d) there is an external benefit to society from copper production. 

Reference no: EM13118540

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